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Pension freedom withdrawals at an all time high

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We discuss the increase in over-55s using pension freedom allowances to unlock their pensions, over-65s taking out lump sums, and the risks that both practices can carry.

According to a recent news story, the number of over-65s making lump sum withdrawals from their pension schemes jumped by 38 percent in the last year. The latest statistics from HMRC also revealed that over-55s have withdrawn more than £30bn from their retirement savings since the introduction of pension freedoms in 2015.

The Pension Schemes Act of 2015 allowed people with Defined Contribution (DC) schemes to access their savings flexibly from 55. Savers can either use their pots to buy an annuity if they wish, which would provide them with a regular guaranteed income. They could also use pension freedom to take out larger sums to spend or invest – 25% of which are tax-free.

Taking out tax-free lump sums, with 25% tax, can be hugely useful, but it is always worth seriously considering your options and the impact this will have on the growth of your funds in the future.

Although the pension freedom has been liberating for many, the lure of large amounts of money being made available has proven irresistible to scammers – who are trying different tactics to “liberate” hard-working people of their pension pots.

Pre-55 “pension liberation” scams

Often, scammers will offer you the opportunity to access your pension before the age of 55, which can seem very attractive to some savers.

Any offer to help you unlock your pension pots before 55 is a scam. The promises of money before retirement age is false and will more than likely to result in victims paying out big bills or fees, leaving them with very little or no savings for retirement. These scammers often use tactics such as cold calling – which is now illegal for firms based in the uk – to trick people into transferring large sums of money into fraudulent schemes for high commission fees.

55-plus pension scams

When people aged 55-plus were given access to their pension pots, and allowed to take 25% lump sums tax-free, this also attracted scammers looking to swoop in and get their hands on big sums of money.

Many unsuspecting Brits have been cold-called or approached by people offering free pension reviews, “interesting” investment opportunities or attractive offers that promise high returns.

Glyn Taylor, solicitor at APJ, comments: “If you think you are being scammed or have been contacted by a scammer, it’s always worth doing your due diligence. Firstly, reject any cold calls – cold calling relating to pensions is now illegal for firms based in the UK, but scammers still try their luck hoping that the majority of people will be unaware of this change in the law.

“Secondly, you can check the FCA’s ScamSmart list for firms to avoid. If you are still unsure, seek completely impartial advice from a trustworthy source, such as the Government’s Pension Wise scheme. The general rule is; if it sounds too good to be true, it probably is.”

Taking out lump sums after 65

Although taking lump sums from your pension after 65 is completely above board, you shouldn’t take the decision lightly. Taking out large sums early on could leave pension holders with little money later down the line – especially as life expectancy continues to rise.

However, if pension holders are taking out lump sums or large chunks of money for sensible, well thought out reasons, and not investing in unsuitable, risky or scam schemes for “high returns” then it is entirely at the discretion of the saver.

It’s worth noting that pension scammers know no bounds. Over 65s are also at risk of being bamboozled into investing large sums of their hard-earned money into fraudulent or risky schemes. It’s important to stay vigilant at all times.

The FCA has an excellent resource for finding out information, arming yourself with facts on pension freedom and reporting any suspicious activity or scams.

If you think you have been mis-sold a SIPP or advised to transfer your pension pot to a less suitable or scam scheme, get in touch with our experts to find out how we can help.